Beyond labor ruling, Uber’s bigger ambition: on-demand deliveries

FILE--In this file photo taken, Dec. 16, 2014, a woman leaves the headquarters of Uber in San Francisco, Calif. The Portland, Ore., City Council is expected to OK allowing Uber to operate legally while removing fare limits for traditional taxi companies with Uber drivers getting background checks and insurance. (AP Photo/Eric Risberg, file) less

FILE--In this file photo taken, Dec. 16, 2014, a woman leaves the headquarters of Uber in San Francisco, Calif. The Portland, Ore., City Council is expected to OK allowing Uber to operate legally while ... more

Photo: Eric Risberg, Associated Press

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Barbara Berwick, the plaintiff in a lawsuit against Uber for alleging the company wrongly classifies its drivers as contractors instead of employees, poses for a portrait at home on Wednesday, June 17, 2015 in San Francisco, Calif. less

Barbara Berwick, the plaintiff in a lawsuit against Uber for alleging the company wrongly classifies its drivers as contractors instead of employees, poses for a portrait at home on Wednesday, June 17, 2015 in ... more

Photo: Lea Suzuki, The Chronicle

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An employee walks into Uber's new office on Market St. in San Francisco, Calif. on Friday, May 30, 2014. This is Uber's seventh move.

An employee walks into Uber's new office on Market St. in San Francisco, Calif. on Friday, May 30, 2014. This is Uber's seventh move.

Photo: James Tensuan, The Chronicle

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An UberX driver in San Francisco has been accused of dragging a woman from his car and destroying her phone.

An UberX driver in San Francisco has been accused of dragging a woman from his car and destroying her phone.

Photo: David Ramos / Getty Images

Beyond labor ruling, Uber’s bigger ambition: on-demand deliveries

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Score one for the pros.

The recent ruling by the California Labor Commission that Uber’s army of amateur cab drivers are really employees instead of cheaper independent contractors no doubt delights the beleaguered taxi and limo industry.

But Uber also has its sights set on a business far larger — and potentially more lucrative — than simply shuttling people to the airport: using its drivers to deliver orders from retailers to customers.

With Amazon now offering same-day delivery service (and developing drone technology), retailers ranging from Target and Home Depot to Safeway and Costco are exploring ways to get merchandise more quickly to people who are buying things on mobile phones instead of visiting stores.

“Today’s consumers are looking for always-on, always-open shopping opportunities, and retailers are investing in technology, supply chain resources and fulfillment strategies that will provide a seamless experience,” according to a report by Capgemini Consulting.

Startups like Postmates and Instacart already deliver food and groceries to people within one hour. But those companies, like Uber, also rely on independent contractors who use their own cars to drive to stores, buy the items and deliver them. So the labor ruling doesn’t just strike at Uber’s core business but also at the ability of these on-demand startups to supplant UPS and professional couriers as the dominant force in local deliveries.

Who would Target choose to make its same-day deliveries? Lower-paid Uber contractors, or better-paid, more experienced couriers?

The contractor issue “is not going to go away for Uber,” said Rob Howard, founder and CEO of Grand Junction, a logistics software firm in San Francisco. Howard estimates that classifying Uber drivers as employees — which means granting them health insurance and paid time off — would instantly boost Uber’s costs by about 25 percent.

Howard, of course, is not the most objective source on the subject. Grand Junction acts as a tech platform that connects couriers with businesses.

Most of Grand Junction’s customers are companies that need to deliver things to other companies. But Howard, who recently inked a deal with Home Depot, made clear that the real opportunity lies with on-demand deliveries for retailers.

“It’s the Wild, Wild West out there,” he said.

That’s why retailers will want to work with the pros, instead of trusting Uber drivers whose legal status will not be settled for several years, Howard said.

Grand Junction works with delivery companies that use a mix of employees and contractors. But these companies “understand the limits to what a contractor can and cannot do,” he said.

With Uber, “it’s a totally different experience to do a delivery,” Howard said. “You can’t commingle passengers with packages.”

Howard makes some good points about Uber. But I wouldn’t count out Instacart and Postmates, which already specialize in deliveries.

Instacart is getting big. Really big. The San Francisco startup operates in 16 markets and works with everyone from Safeway and Whole Foods to, most recently, Smart & Final.

In a recent interview, founder and CEO Apoorva Mehta said the company plans to focus on groceries for the time being. But once Instacart gets the hang of it, Mehta suggested, retailers of consumer goods are the next logical step.

“Retailers are pursuing faster deliveries because of Amazon,” said Mehta, who once worked at the online retail giant. By offering same-day deliveries, pick-up lockers, and possibly drones, “Amazon is bringing everything they’ve got to deliver things faster and faster. You can see where this is going.”

As for the California labor ruling, Mehta says he’s not too worried. The law just needs to catch up with an on-demand industry that did not exist until a few years ago, he said. A huge potential workforce already has the tools it needs to do on-demand work.

“The reality is that this is the first time in the industry that here has been such a large workforce with GPS-equipped mobile devices,” Mehta said. “We create work for people who already have smartphones and cars.”